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Summary Accounting literature notes 22/23
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Accounting literature notes 22/23; Gee
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Accounting literatuur aantekeningenHoofdstuk 1 – introducing financial accounting:
Accounting: the process of recording, summarising, and analysing financial transactions.
2 categories:
- Financial accounting – decision makers outside of the company (information about
company profitability and financial health)
- Managerial accounting – decision makers within the company (includes proprietary
information about the profitability of specific product, divisions, or customers)
Who uses financial accounting information?
- Shareholders and potential shareholders
Corporation: form of business organization that is characterized by a large
numer of owners who are not involved in managing the day-to-day operations
of the company. – legal entity that issues shares to its owners in exchange for
cash.
Sole proprietorship: single owner who manages the daily operations (f.e.
small family businesses).
Partnership: 2 or more owners involved in managing the business (f.e.
lawyers/accountants).
→ financial statements provide information on the risk and return associated
with owning shares in the corporation and reveal how well management has
performed.
→ f.s. also provide insights into future performance by revealing
management’s plans for new products, procedures, and strategic directions.
- Creditors and suppliers
Creditors: banks or other lenders; use financial accounting information to help
determine loan terms, loan amounts, interest rates, and collateral.
Suppliers: use financial information to establish credit sales terms and to
determine their long- term commitment to supply-chain relationships.
- Managers and directors
Board of directors: elected to represent shareholder interest and oversee
management.
Directors use financial accounting information to review the results of
operations, evaluate stragety, and asses management performance.
, - Financial analysts
Analysis helps identify and asses risk, forcast performance, establish prices for
new issues of shares, and make buy of sell recommendations to investors.
- Other users: prospective employees, labour unions, customers, tax agencies and
government agencies.
Investing = creditor financing + owner financing
Assets = liabilities + equity
Income = revenues - expenses
Return on equity (ROE):
Debt-to-Equity Ratio (D/E):
Balance sheet:
Income statement:
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